Free-riding

If the project gets a free ride, i.e., if App is zero, then T[ takes on its maximum possible value of unity. Conversely, if the project and its prodiicliou rate are only at the breakeven point, then T becomes zero. Therefore, contribution efficiency can be regarded as a measure of the probability of success for the project. 

Cauchom, D., Americans pay more, here s why, USA Today, November 10, 1999, p. Al. Kolassa, E.M., The cost of research generic drug firms get a free ride, Washington Times, December 6, 1999, p. A17. 

The explanation for why patents are more important to pharmaceutical firms in appropriating the benefits from innovation follows directly from the characteristics of the pharmaceutical R D process. It takes several hundred million dollars to discover, develop, and gain regulatory approval for a new medicine. Absent patent protection, or some equivalent barrier, it would then be the case that imitators could "free ride" on the innovator s FDA approval and duplicate the compound for a small fraction of the originator s costs. Imitation costs in pharmaceuticals are extremely low relative to the innovator s costs for discovering and developing a new compoxmd. 

Bain Company. 2005. The Pharma Innovation Divide The High Cost of Europe s Free Ride. Available at www.bain.com/bainweb/Consulting Experhse/hot topics/ detaU.asp id=22. Last accessed October 28, 2005. 

Given such large investment costs and risks, very little innovative pharmaceutical research would take place in a free market system. The reason is that an innovator would bear the full cost of its failures, but would be unable to profit from its successes because competitors would copy or retro-engineer its invention (effectively free-riding on its effort) and then drive down the price close to the marginal cost of production. This is a classic instance of market failure leading to a collectively irrational (Pareto-suboptimal) outcome in which medical innovation is undersupplied by the market. 

Successful cooperation in this sense requires the solution of two problems. In general, there must be a mechanism for dividing the benefits from cooperation. In cases where universal cooperation is pointless, there must also be a mechanism for deciding who shall be allowed to take a free ride. Either problem can be solved in a decentralized or centralized way. The decentralized mechanism, which is the topic of this chapter, is bargaining. In the next. 1 consider centralized mechanisms. 

By the fixed tariffs in the primary market, the Norwegian regulations exclude tariffs equal to short run marginal costs or free riding shippers. 

Stay away when it s wet. Some plant disease organisms are just waiting for a free ride on your clothing and hands. Don t cooperate Most diseases need only a thin film of water to spread from one plant to the next. During warm, rainy spells, disease transmission is at its greatest. 

While the federal burden of funding of ALG II, related employment services and housing costs went up, municipal responsibility for the implementation of labour market policy increased. The municipalities can free-ride in their decisions at the expense of the state budget. As the municipalities maintain the financial responsibility for income support for persons who are not able to work (social assistance), the municipalities have an incentive to shift costs by classifying persons as being able to work who would otherwise obtain municipal social assistance. Indeed, in 2005 more than 90% of the former SA recipients were assessed to be capable of working and therefore transferred to the federal funded ALG II system. 

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